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Taxation on L-1 visa

Taxation on L-1 visa

Old Sep 24th 2012, 8:35 pm
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Default Taxation on L-1 visa

Hi,

I am an Indian citizen with Indefinite Leave to Remain in the UK. I am transferring to the US office on L-1 visa. I will be paid by the US employer and not by the UK employer. Hence, it is localization and not an assignment.

I would like to pay UK Taxes and NIC only on my UK income and pay US income taxes +Social Security+Medicare when I start earning in the US and at any rate avoid double taxation. Please could anyone share their experience on how it can be done.

Many Thanks
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Old Sep 24th 2012, 10:54 pm
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Default Re: Taxation on L-1 visa

Originally Posted by gofish View Post
I would like to pay UK Taxes and NIC only on my UK income and pay US income taxes +Social Security+Medicare when I start earning in the US and at any rate avoid double taxation. Please could anyone share their experience on how it can be done.
That is essentially what will happen.

You will pay UK taxes etc up to the point when you leave the UK.

Once you arrive in the US you will pay US taxes, Social Security etc.

Depending on when you arrive in the US you may or may not be considered to be resident (for tax purposes) for that particular tax year, but regardless of that you will not be subject to double taxation.

See if you can get your employer to pay for a tax advisor for your first year in the US as part of your relocation package.
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Old Sep 24th 2012, 11:50 pm
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Default Re: Taxation on L-1 visa

Originally Posted by md95065 View Post
That is essentially what will happen.

You will pay UK taxes etc up to the point when you leave the UK.

Once you arrive in the US you will pay US taxes, Social Security etc.
In addition, if you have spent enough years already in the UK (I think its two or three), then you might want to consider paying voluntary Class II NI Contributions to the UK whilst in the US (or indeed from India if you decide to return there one day). The contributions from overseas are just £2.50 a week, which is quite a bargain. Once you have made thirty years of contributions (both what you've already made in the UK and voluntary contributions from overseas) you should be entitled to the full UK state pension.

Last edited by rpjs; Sep 24th 2012 at 11:53 pm.
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Old Sep 25th 2012, 7:39 am
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Default Re: Taxation on L-1 visa

Originally Posted by md95065 View Post
That is essentially what will happen.

You will pay UK taxes etc up to the point when you leave the UK.

Once you arrive in the US you will pay US taxes, Social Security etc.

Depending on when you arrive in the US you may or may not be considered to be resident (for tax purposes) for that particular tax year, but regardless of that you will not be subject to double taxation.

See if you can get your employer to pay for a tax advisor for your first year in the US as part of your relocation package.
Thanks for the response. I will not pass substantial presence test for this year. Hence, will use Form 1040 NR. But how do I take credit of tax deducted on interest on UK savings. Additionally, how do I treat Cash ISA and Stock ISA. In UK , tax on interest is generally 20%. Does US has a similar percentage or I will end up paying more if i declare tax credit for UK savings interest?

The relocation package does not include tax services and it can not be negotiated now.
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Old Sep 25th 2012, 7:53 am
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Default Re: Taxation on L-1 visa

Originally Posted by rpjs View Post
In addition, if you have spent enough years already in the UK (I think its two or three), then you might want to consider paying voluntary Class II NI Contributions to the UK whilst in the US (or indeed from India if you decide to return there one day). The contributions from overseas are just £2.50 a week, which is quite a bargain. Once you have made thirty years of contributions (both what you've already made in the UK and voluntary contributions from overseas) you should be entitled to the full UK state pension.
If i decide to come back to the UK after a few months, will i still be eligible to receive NHS benefits? Does it depend on continuing to pay overseas NI contributions?
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Old Sep 25th 2012, 9:35 am
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Default Re: Taxation on L-1 visa

this whole system ist soo confusing
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Old Sep 25th 2012, 10:17 am
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Default Re: Taxation on L-1 visa

Originally Posted by gofish View Post
If i decide to come back to the UK after a few months, will i still be eligible to receive NHS benefits? Does it depend on continuing to pay overseas NI contributions?
No, NHS benefits are based on residence, so so long as you return to the UK to live before your ILR had expired you'd be OK.
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Old Sep 25th 2012, 1:50 pm
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Default Re: Taxation on L-1 visa

Originally Posted by gofish View Post
If i decide to come back to the UK after a few months, will i still be eligible to receive NHS benefits? Does it depend on continuing to pay overseas NI contributions?
NHS benefits solely depend on your residence in the UK. If you loose that you are not eligible for free at point of service NHS treatment. You cannot visit the UK and get anything other than emergency treatment from the NHS without paying for it.
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Old Sep 25th 2012, 2:13 pm
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Default Re: Taxation on L-1 visa

Originally Posted by gofish View Post
Thanks for the response. I will not pass substantial presence test for this year. Hence, will use Form 1040 NR. But how do I take credit of tax deducted on interest on UK savings. Additionally, how do I treat Cash ISA and Stock ISA. In UK , tax on interest is generally 20%. Does US has a similar percentage or I will end up paying more if i declare tax credit for UK savings interest?

The relocation package does not include tax services and it can not be negotiated now.
You can take a foreign tax credit on Form 1116. Enter the interest and tax for the time you were liable for US taxes.

ISA interest and gains are fully taxable in the US. You have to enter them on your 1040. The Cash ISA is treated like an interest bearing account, so just enter amounts on 1040 and Schedule B.

The Stock ISA is probably a foreign grantor trust and may well be invested in Passive Foreign Investment Corporations (PFICs) such as UK unit trusts so you might have to file 3520A, 3520, 8621 plus possibly an 8833.

If you reach the account balance thresholds you will also have to file FBAR and 8938.

If you have other foreign assets such as pensions, insurance policies with an investment component of brokerage accounts they also have to be dealt with for the purposes of US taxation.

Last edited by nun; Sep 25th 2012 at 2:15 pm.
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Old Sep 25th 2012, 4:36 pm
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Default Re: Taxation on L-1 visa

Originally Posted by nun View Post
You can take a foreign tax credit on Form 1116. Enter the interest and tax for the time you were liable for US taxes.

ISA interest and gains are fully taxable in the US. You have to enter them on your 1040. The Cash ISA is treated like an interest bearing account, so just enter amounts on 1040 and Schedule B.

The Stock ISA is probably a foreign grantor trust and may well be invested in Passive Foreign Investment Corporations (PFICs) such as UK unit trusts so you might have to file 3520A, 3520, 8621 plus possibly an 8833.

If you reach the account balance thresholds you will also have to file FBAR and 8938.

If you have other foreign assets such as pensions, insurance policies with an investment component of brokerage accounts they also have to be dealt with for the purposes of US taxation.

Since for 2012, I will be considered non resident alien and use Form 1040-NR, do I still need to declare ISAs? I mean I will be present in the US only for a month in 2012 and it does not make sense to get taxed for ISAs for the whole 2012.
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Old Sep 25th 2012, 6:16 pm
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Default Re: Taxation on L-1 visa

Originally Posted by gofish View Post
I would like to pay UK Taxes and NIC only on my UK income and pay US income taxes +Social Security+Medicare when I start earning in the US and at any rate avoid double taxation. Please could anyone share their experience on how it can be done.
Read IRS publication 519.

Are you saying you want to remain resident in the UK for tax purposes?

Typically how it works is you file a dual-status tax return for the first year you are in the US. I.e. non-resident for the first part of the year and resident for the second part. A lot of people forget to do this and end up with a large tax refund at the end of the year because they didn't do it correctly. H&R Block, Turbo Tax etc. have no clue about dual-status returns.

Under the tax treaty, you can remain resident in the country you came from as an intracompany transferee for 183 days.

Also there is a special provision for intracompany transferees, and you can get an exemption certificate from social security under the UK-US totalization agreement: http://www.socialsecurity.gov/intern...phlets/uk.html
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Old Sep 25th 2012, 6:24 pm
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Default Re: Taxation on L-1 visa

Originally Posted by gofish View Post
Thanks for the response. I will not pass substantial presence test for this year. Hence, will use Form 1040 NR.
But you don't have to, if you're actually living in the US you can use 1040 and just file a dual-status return. If you're living in the US for any length of time it doesn't make sense to file 1040NR. Whether you meet the substantial presence test is academic, unless for some reason you want to go on paying UK taxes or having your tax home there.

Cash ISA would be treated like a savings account, so basically you declare the interest, Stock ISA depends on what it is in, might be a 3520 or 8621 but there is no exemption for say, capital gains tax either. However the current long-term capital gains rate in the US is zero.

Personally I can't see the point in carrying on with ISAs if you don't live in the US, they are a tax benefit for UK residents only, if you are not UK tax resident, what's the point? You might as well have a savings account than a cash ISA.

Anyway remember to file HMRC R105 with your UK bank(s) if you move your tax home to the US, then they will stop withholding UK income tax. Also P85 with HMRC if you move your tax home.
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Old Sep 25th 2012, 7:39 pm
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Default Re: Taxation on L-1 visa

Originally Posted by gofish View Post
Since for 2012, I will be considered non resident alien and use Form 1040-NR, do I still need to declare ISAs? I mean I will be present in the US only for a month in 2012 and it does not make sense to get taxed for ISAs for the whole 2012.
If you are a NRA you only have to declare US source income. But the big picture issue here is holding ISAs as a US resident.......as I assume you will eventually be. ISAs don't have any advantages for US residents and stock ISAs are a big headache when it comes to US tax filing. IMHO you should cash in all ISAs if you are moving to the USA and invest the money in the US.
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Old Sep 25th 2012, 7:42 pm
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Default Re: Taxation on L-1 visa

Originally Posted by Steve_ View Post
However the current long-term capital gains rate in the US is zero.
Isn't than only if your taxable income is within the 15% tax bracket
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Old Sep 25th 2012, 8:02 pm
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Default Re: Taxation on L-1 visa

Originally Posted by nun View Post
Isn't than only if your taxable income is within the 15% tax bracket
Yes - only if your tax bracket is 15% or below and only through the end of 2012.

Next year I believe that it will be 8% if you are in the 15% bracket or below and 18% for everyone else ...
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